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66 Cards in this Set
- Front
- Back
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What is competitive strategy? |
How to compete and build competitive advantage |
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What is the objective of competitive strategy? |
To build a competitive advantage |
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What is a competitive advantage? |
Condition or circumstance that puts a business in a superior position |
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Identify, define, and describe the 5 generic competitive strategies? |
Overall low cost provider strategy Broad differentiation strategy Focused low cost strategy Focused differentiation strategy Best Cost Provider Strategy |
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Describe in some detail Figure 5.1. |
It is 5 generic competitive strategies, in theory, following this will gain you competitive advantage. It’s based on the target market and either following lower cost or differentiation |
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What is a low cost provider strategy? |
lower overall cost than competitors |
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What are the 2 major avenues for achieving a cost advantage and how can each be used to achieve a low cost advantage? |
Perform value chain activities most cost effectively than rivals Revamp the firms overall value chain to eliminate or bypass some cost-producing activities. |
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What are the keys to success in achieving low cost leadership? |
Make achievement of low cost relative to rivals the theme of firm’s business strategy Find ways to drive costs out Low overall costs |
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When does a low-cost provider strategy work best? |
Price competition is intense Commoditized products Hard to differentiate products Product use is the same Low cost to switch Buyers are large and have bargaining power New entrants use low price to attract customers |
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What are the pitfalls of a low-cost provider strategy? |
Getting carried away with overly aggressive price cutting Higher unit sales and market shares do not automatically translate into higher profits Relying on an approach to reduce costs that can be easily copied by rivals Becoming to fixed on cost reduction. Offerings may end up too feature poor to generate buyer appeal |
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What is a differentiation strategy and how can it be used to achieve a competitive advantage? |
To provide products that customers see as being unique and are important to them |
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Where along the value chain can a differentiation advantage be achieved? |
Channel Allies to enhance customer value Coordinating with suppliers to better address customer needs |
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What are the 4 basic approaches that an organization can use to create a differentiation advantage? |
Lower the buyers’ overall cost Incorporate Tangible features Incorporate intangible features Signal the value of the company’s product offering to buyers |
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When does a differentiation strategy work best? |
When buyers’ needs are diverse, they want uniqueness and are willing to pay for it Few rivals following the same approach When there are a lot of different technological approaches |
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What are the pitfalls of a differentiation strategy? |
You could over differentiate You could differentiate based on features your customers don’t want Have something easily imitated overcharge |
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Why is it important to keep the costs of differentiation in-line? |
If you charge too much for your product, it won’t be successful. |
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What is a best-cost provider strategy and how can it be used to achieve a competitive advantage? |
Mix of low cost and differentiation Give buyers more value for their money Meet expectations of product attributes and beat expectations of price Must offer significantly more value for the money |
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When does a best-cost provider strategy work best? |
product is medium quality at a below average price or a high quality product is at an average or slightly higher price |
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What is the big risk of a best-cost provider strategy? |
Being stuck between firms using low cost and high end differentiation strategies Low cost providers can steam customers with lower costs and high end differentiators can steal customers with better products |
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What is a focused or niche strategy? |
It is when a company concentrates their attention on a narrow piece of the total market |
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Identify and describe the 2 types of focus strategies? |
Focus on low cost Focus on differentiation |
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When is focusing attractive? |
Niche is big enough to be profitable Leaders have chosen not to compete in the niche Costly for multi-segment competitors to meet customized needs of niches Industry has many different segments allowing a focuser to pick a niche Few rivals |
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What are the risks of focusing? |
Competitors will find effective ways to match capabilities Needs and preferences shift over time |
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What are offensive strategies and what are they used for? |
-exploitthe power of a company’s strongest competitive assets -Offering an equally good or better product at a lower price -Leapfrogging competitors by being first to market with next-generation products. Pursuing continuous product innovations to create new markets - Adopting and improving on the food ideas of other companies (rivals or otherwise) - Using hit-and-run or guerrilla warfare tactics to grab market share from complacent or distracted rivals. - Launching a preemptive strike to secure an industry’s limited resources or capture a rare opportunity. |
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What are defensive strategies and what are they used for? |
Defensive strategies do not enhance competitive advantage but they help fortify the firms competitive position. Defensive strategies can take the following 2 forms: - Actions to block challengers - Actions to signal the likelihood of strong retaliation. |
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What are first-mover advantages and disadvantages and late-mover advantages and disadvantages? |
FMA - First to initiate a strategic move FMD - If it breaks, competitors can fix LMA - if it breaks, competitors can fix LMD- Competitors get into the market first |
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What are mergers and acquisitions and why do they occur? |
Mergers - combining a company and changing the name to reflect both companies Acquisitions - One company buys and absorbs another They occur because of growth to maintain competitive advantage |
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What are the advantages and disadvantages of vertical integration? |
Advantage - increases technological capabilities Disadvantages - increases risk, slow to embrace advances, less flexilbility |
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What is outsourcing? |
moving an in house task to another company |
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When is outsourcing advantageous? |
When competencies can be completed better or cheaper |
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What is the big risk of outsourcing? |
A company will farm out the wrong types of activities and thereby hollow out its own capabilities Lack of direct control |
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What are cooperative strategies and strategic alliances? |
Cooperative strategy - joint venture Strategic alliance - agreement between two companies to work together toward a common objective |
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Why and how can strategic alliances be advantageous? |
It helps build, strengthen, or sustain a core competence or competitive advantage. Helps defend against a competitive threat, or mitigates risk Increases bargaining power over suppliers or buyers - Helps open up important new market opportunities - Speeds the development of new technologies and/or product innovation. |
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How do functional level strategies relate to business level strategy? How should functional level strategies be chosen? |
Functional level strategy is based on daily activities related to each detailed section of the company. Business level strategy is based on how the company will make more money etc. Choose by deciding how to increase production, quotas etc. |
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Why do companies expand into foreign markets? |
To gain access to new customers To achieve lower costs through economies of scale, experience and increased purchasing power To gain access to low cost inputs of production To further exploit its core competencies Gain access to resources and capabilities located in foreign markets |
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What is the difference between competing internationally and competing globally? |
internationally - few foreign markets globally-most countries and majors |
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How do cross-country differences affect how organizations should compete in foreign markets? |
Culture and lifestyles Market demographics Market conditions i. Growth rate ii. Distribution systems iii. Need for responsiveness Location advantages Exchange rates Host government restrictions |
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Identify and describe the 1/3 major strategic options for entering into and competing in foreign markets. |
Exporting i. Maintaining nationalproduction and export goods to foreign markets Licensing i. Allow foreign firms toproduce and distribute |
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Identify and describe the 2/3 major strategic options for entering into and competing in foreign markets. |
Franchising i. Similar to licensing butmore suited to services and retailers Acquisition / merger i. Acquire or merge withcompany competing in foreign market |
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Identify and describe the 3/3 major strategic options for entering into and competing in foreign markets. |
Greenfield Venture i. New start up to enter intoa foreign market ii. High failure rate, slowreturn on investment Strategic alliances i. Combine resources withforeign partners |
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Identify and describe 3 major international strategies. |
Multicountry i. Think local act local ii. Tailor strategy to eachcountry Global i. Think global act global ii. Pursue same basic strategyworldwide Transnational i. Think global act global ii. Combination global-localstrategy |
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How can a firm achieve a competitive advantage by competing in international markets? |
-Locating activities - Transferring of competencies to foreign markets - Coordinating cross-border activities -Profit sanctuaries i. Where home marketconsumers are so loyal, they are willing to pay more - Cross market subsidization |
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What are profit sanctuaries and cross-market subsidization? |
Profit sanctuaries i. Where home marketconsumers are so loyal, they are willing to pay more Cross market subsidization i. Resources from healthysegment given to poor segment |
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What are the differences between corporate level and business level strategy? |
-Corporate strategy =company as a whole - business= specific segment. |
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What is corporate level strategy? |
The strategy for a company and all of its business units as a whole |
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What is diversification? |
The primary approach to corporate level strategy |
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What are the four distinct facets of corporate level strategy? |
-Picking new industries to enter -Pursuing opportunities to leverage -Establish investment priorities and steering corporate resources -Initiating actions to boost performance of the business |
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When should a firm diversify? |
-When they have excess resources, capabilities and core competencies that have many uses -Diminishing growth prospects in present industry - Cost saving opportunities - Capture strategic fits Capture financial economies - Spread business risk Leverage brand name |
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Discuss and explain why building shareholder value is the ultimate justification for diversifying? |
Shareholders like diversification in business to reduce risk and give shareholders a chance to have a chance to be successful in the company in many segments |
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Explain the significance of the three tests for judging a diversification move. |
-Industry attractiveness test i. Offer growth, profits, andROI -Cost of entry test i. How much to get into themarket, the lower the better -The better off test i. Can diversifying increasethe value of the company as a whole? |
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Describe in some detail the three basic strategies that organizations can use to enter new businesses. |
-Acquisition i. Buying a company in thenew industry -Internal new venture i. Starting your own businessin the new industry - Joint venture i. Teaming with anothercompany already in the new industry |
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Explain in some detail what related diversification is. |
Involves diversifying into business where they all synergize with each other |
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Why do firms pursue related diversification? |
Resources and capabilities are used to help the other segments of the company. 1+1=3 |
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How can related diversification build shareholder value? |
Cost reductions Spreads risk over broader base Strategic unity in activities |
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What are strategic fits, economies of scope, and synergies and why are they important in the pursuit of related diversification? |
Strategic fits – when activities in one part of the business help another part Economies of scope –when making 2+ products together is cheaper than making them separately Synergies – When parts of the business help each other. |
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In what areas can strategic fits be captured? |
i. Competitive strengths of each business unit ii. Attractiveness in each industry iii. Competitive advantage potential iv. Future resources fit requirements of present business v. Rank performance prospects and assign a priority of resourceallocation |
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How can strategic fits and economies of scope lead to a competitive advantage? |
It can create a vertical business which allows significantly lower costs of business. |
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What is unrelated diversification? |
Its when companies expand into industries that don’t help other business segments |
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Why do firms pursue unrelated diversification? |
Its all about the money rather than making the process of their original business easier |
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What are the pros and cons or what is the appeal of unrelated diversification? |
Company can diversify into many different industries making it appealing |
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How can unrelated diversification build shareholder value? |
-Provides high level oversight and makes other corporate resources available - Allows the business to spread its money across the entire portfolio effectively - Helps to restructure poorly performing acquisitions |
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Explain the 2 major drawbacks of pursuing unrelated diversification. |
Demanding managerial requirements Limited competitive advantage potential |
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Identify and briefly describe the 3/six steps associated with evaluating the strategy of a diversified company. |
-Assess attractiveness of each industry - Assess competitive strengths - Check competitive advantage potential |
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Identify and briefly describe the 3/six steps associated with evaluating the strategy of a diversified company. |
-Check whether the resources fit the requirement of the present business -Rank performance prospects and assign a priority for resource allocation -Craft strategic moves to improve overall performance |
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Identify and briefly describe the strategic options for companies that are already diversified (i.e., broadening business base, retrenchment and divestiture, restructuring and turnaround, and multinational diversification strategies). |
Stick with the existing business lineup Buy new businesses Go back to your original market Sell or buy new businesses through restructuring |
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What are the distinguishing characteristics of a multinational diversification strategy? |
Entering more businesses or entering more country markets |
